India's Industrial Production Index Gets Major Overhaul with New Base Year
The Ministry of Statistics and Programme Implementation is set to unveil a comprehensive revision of India's Index of Industrial Production (IIP), marking a significant update to one of the country's most important economic indicators. The new series will feature a chain-based methodology with annual resets, replacing the current fixed base year approach that has been in place since 2011-12.
Key Changes in Sector Weightage
The updated IIP series, scheduled for release on May 28, will bring substantial changes to how different industrial sectors are weighted within the index. Electricity generation will see its weight increase significantly to 11.5%, up from approximately 8% in the current series. This adjustment reflects the growing importance of power generation in India's industrial landscape.
Meanwhile, manufacturing will gain additional prominence with its weight rising to 79% from the current 77.6%. This sector continues to dominate India's industrial production, accounting for nearly three-quarters of the total index. In contrast, mining activities will see their weightage reduced to about 11%, down from the current 14.4%.
Transition to Chain-Based Methodology
The most fundamental change in the new IIP series is the shift to a chain-based methodology. Unlike the current fixed base year approach, which uses constant weights from a specific reference year, the chain-based system will allow for annual revisions of sectoral and industry weights. This dynamic approach better captures the evolving nature of India's industrial sector.
"In the fixed base methodology frame, it is difficult to account for factories that shut down or new firms that emerge due to change in the composition of the economy," explains P C Mohanan, former acting chairman of the National Statistical Commission. "Chain basing allows for frequent revisions in the frame, although comparability becomes an issue in this approach."
Reflecting Changing Production Patterns
The revised weights align with broader economic trends observed over the past decade. "Growth in electricity GVA (which also includes gas and water supply) has outstripped growth in mining GVA in the past decade," notes Gaura Sengupta, chief economist at IDFC First Bank. "The new IIP series is bound to reflect these changes happening in the production pattern."
Within the manufacturing sector, specific industries will see their weights adjusted to better represent current production realities:
- Industries gaining increased weightage include pharmaceuticals, rubber products, motor vehicles, beverages, food products, and chemicals
- Industries expected to see reduced weightage include printing and reproduction of recorded media, and manufacture of coke
Broader Context of Economic Indicators Revision
The IIP revision forms part of a larger effort by the statistics ministry to update key macroeconomic indicators. Alongside the IIP, other important measures like the Consumer Price Index (CPI) and Gross Domestic Product (GDP) are also undergoing base year revisions. This comprehensive update aims to provide more accurate and timely data reflecting India's evolving economic structure.
As a key high-frequency indicator, the IIP measures short-term changes in production volume across Indian industries, offering crucial insights into industrial growth or contraction patterns. The updated series promises to deliver a more nuanced understanding of India's industrial dynamics, capturing both established sectors and emerging production lines that have developed since the previous base year.
